The gloom at GATT - General Agreement on Tariffs and Trade

National Review, Dec 3, 1990

SSIONS are inevitable from time to time. Depressions require profound mistakes in economic policy. The apparent reluctance of the European Community to negotiate meaningful reductions in trade barriers could easily condemn an already weak world economy to a rerun of the 1930s.

The immediate issue is agriculture. The EC protects a few million of its smallest, most inefficient farmers with a wide array of quotas and export subsidies. The Common Agricultural Policy, or CAP, costs European taxpayers and consumers $125 billion a year, and keeps some food prices three times higher than in the rest of the world. European politicians, however, have shown little stomach to take on the politically well organized farmers.

The U.S., where farm subsidies are already slated to fall under the recent budget agreement, originally proposed a 90 per cent reduction in remaining export subsidies over the next ten years. After five weeks of hand wringing, the Europeans reluctantly agreed to consider a 30 per cent cut, in reality even less since it includes the 15 per cent reduction in farm supports already made since 1986.

A half-hearted agreement on European agriculture would probably preclude the U.S. from substantially lowering its textile and clothing barriers. Japan would have no reason to compromise on rice. At that point the Third World nations would probably conclude that their chances of rising to First World status was nil, and walk out on the remainder of the 102-nation Uruguay Round talks.

A collapse would leave unresolved issues critically important for the industrial countries: freedom for banks and insurance companies to open branches in developing countries, rules governing trade in telecommunications, construction, and other services (which as a group are growing five times faster than trade in goods), and standards to protect intellectual property. American officials calculate that U.S. businesses lose $60 billion a year to pirated patents, trademarks, and copyrights.

Seven previous rounds of multilateral trade negotiations under the General Agreement on Tariffs and Trade (GATT) have reduced tariff rates to 5 per cent today from over 40 per cent in 1947. Over the past forty years world trade rose over tenfold, while world output increased about threefold. With one-quarter of international trade at stake in the present negotiations, and with recession signals flashing everywhere, the Europeans would be well advised to restrain their bucolic provincialism.

They stand to lose as much as anyone from a breakdown in the international trading system.